October 03, 2010

In The News . . . . San Juan Capistrano Stung With $2.3 Million In Litigation Expenses After It Lost Development-Related Lawsuit By Scalzo Family Trust

Expense Award Follows on the Heels of Nearly $7 Million Adverse Jury Verdict.

As reported by Vik Jolly in a September 27, 2010 article in The Orange County Register, San Juan Capistrano must be reeling from a recent adverse jury verdict and subsequent litigation expenses award stemming from a lawsuit it lost against the Scalzo Family Trust about 121 developments conditions that City placed on the Belladonna Estates project, a 31-lot development on nearly 17 acres of land on property owned by the Trust along the west side of Del Obispo Street north of Paseo de la Paz and south of Calle Aspero.

Above: c1900 – 1930. Library of Congress.

The Trust sued and won a nearly $7 million jury verdict in June 2010, a verdict that was not overturned by the trial judge, Orange County Superior Court Judge Gail Andler. Also, Judge Andler apparently awarded $2.3 million in litigation expenses against the City in the same suit sometime last week. City has avowed to appeal.

Mr. Jolly reports that this may have a big impact on San Juan Capistrano, because this potential loss may not be insured. Since the last 1970s, most small to medium-sized cities do not insure through private carriers but pay liability insurance premiums to the California Joint Powers Insurance Authority (CJPIA), a governmental body representing some 119 entities such as cities and small governmental agencies. The CJPIA administers the insurance pool and calculates premiums based on a complex formula, self-insuring most liability claims up to $10 million and then using various excess insurers to cover larger risks up to $50 million. This insurance generally blunts the blow of large settlements or judgment for small to medium cities. However, here is the rub: the judgment amount in the Scalzo Family Trust case may not be covered by insurance because it stems from a land-use permit approval, according to reporter Mr. Jolly.

This could be quite a fiscal predicament for San Juan Capistrano, which has roughly a $22 million general fund budget. City Attorney Omar Sandoval has told Mr. Jolly that if the large judgment is upheld on appeal, the city has options such as a standard loan or to pay the judgment in up to 10 annual installments pursuant to law. (BLOG OBSERVATION—This refers to some California Government Code provisions that allow a city to seek installment-based payments for some judgments, as well as specifying the mandate relief available to victorious litigants in some disputes.) However, until something else occurs (such as a reversal on appeal), this large judgment continues to accrue interest at a 7% per annum basis. Obviously, we will be reporting on developments in the future, be it a settlement or the opinion from the Fourth District, Division 3.